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Payroll the Final Frontier

14 Aug Payroll the Final Frontier

Xero’s recent announcement that it was acquiring Australian online payroll company PayCycle was in some ways a little surprising given that they had, only a few months before, released payroll-lite functionality into Xero itself. Some accountants we have talked to have been a bit dismissive of the new functionality referring to it as payslips, rather than payroll with the required functionality of tax calculations, leave balances, etc.

Talking with Xero staffers about the release it seemed there wasn’t a lot of support to include payroll in the product. Xero board member and MYOB founder Craig Winkler has been the driving force behind the development. Apparently, in the Australian small business accounting market customers expect payroll and accounting to be part of the same package. That is certainly the case with Xero’s competition SaaSu and recently MYOB added payroll to the Australian version of LiveAccounts.

With the acquisition of PayCycle, Xero will be injecting steroids into their current payroll functionality for the Australian market. I would assume they will look to integrate PayCycle as much as possible into the current Xero user interface. The difficulty with payroll though, as we know very well, is that it is quite a different beast in different countries. Xero appear to have chosen Australia as the battlefront for payroll, but it will be interesting to see if they bother developing extended payroll functionality for the New Zealand market.

I remember talking with Rod Drury, Xero CEO, about payroll in New Zealand and his comment was that there was no money to be made in payroll in New Zealand because of the amount of competition. Why would Xero bother going further into payroll in New Zealand when small businesses here are comfortable with the accounting and payroll functions being separate? The same question could be asked about MYOB’s online version LiveAccounts and whether they will bother including payroll for the New Zealand market.

Even if the payroll function is removed from FlexiTime we have an application that allows businesses, such as recruitment companies, to more efficiently manage candidate time and client approval. Unlike other payroll companies in New Zealand we decided that we wouldn’t provide payroll intermediary services, that is processing the bank payments and filing IRD returns on behalf of our customers. These are simple tasks that can be done using FlexiTime but have been left as the responsibility of the business owner. This has allowed us to focus on developing the best employee time management software.

Our plan is to develop a global version of our software focussing on employee time management functionality and providing payroll in specific markets as resources allow. Australia are on obvious choice as an initial market for developing payroll functionality. Using a bootstrapping approach to growing the business can sometimes feel like a long slow process but we have remained flexible and are listening to our customers and this has allowed us to pivot where necessary and take advantage of opportunities when they have presented themselves. We think we’re now ready for the next stage.